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Nov. 10 — Consumer and worker advocates had been optimistic in recent months that their movement
against mandatory arbitration was gaining traction.

Several federal agencies, including the Consumer Financial Protection Bureau and the
Department of Education,
had proposed or finalized rules to limit arbitration clauses and class action bans that
had been placed in contracts after a series of favorable decisions from the U.S. Supreme
Court.

But the election of Donald Trump to the presidency is likely to set the agencies,
and anti-arbitration advocates, back.

Pro-Business or Little Guy?

“Trump and his businesses seem to have been big proponents of arbitration, using it
as a way of getting disputes out of courts and therefore out of the public eye,” defense
attorney Liz Kramer told Bloomberg BNA. Kramer, of Stinson Leonard Street LLP in Minneapolis,
writes for her firm's blog
Arbitration Nation.

“Given his overall ‘change' message, and repeated criticism of all things Obama, my
gut tells me his administration will roll back these regulations,” she said.

Defense attorney Alan S. Kaplinsky, who leads the consumer financial services group
at Ballard Spahr in Philadelphia, agreed. The election could, in particular, “spell
very bad news for the CFPB” and its regulatory efforts, including those aimed at limiting
class action waivers in credit card agreements and other financial service products,
he said.

“Proposed rules pertaining to arbitration and small dollar lending are in jeopardy,”
he said.

But a large-scale rollback of the anti-arbitration rules isn't necessarily inevitable.

Kramer pointed out that “part of Trump's campaign message was one of populism and
empowering the ‘little guy.'”

It's possible that could “translate into supporting regulations that allow more consumers
and employees to keep their disputes in court,” she said.

Plaintiffs' attorney Deepak Gupta, a prominent opponent of arbitration, agreed that
Trump's “mandate reflects a deep distrust of Wall Street and the financial system”
and that might work in favor of consumers and workers.

“Nobody really thinks he was elected because his supporters think Wall Street should
get a free pass,” said Gupta, the founding principal of Gupta Wessler PLLC, a Washington
public interest law firm.

It's unclear whether Trump even knows what the CFPB does, he said.

The short answer, Gupta said, is we don't know what Trump will do on arbitration.

“We knew that Hillary Clinton had strongly endorsed limits on mandatory arbitration
by administrative agencies, but we don't know what Donald Trump's position and he
probably doesn't know either,” he said.

Final Rules: Time-Consuming to Reverse

If Trump does decide to dismantle the individual federal agencies' anti-arbitration
rules, his success depends on how far along each rule progressed, Adam Zimmerman told
Bloomberg BNA. Zimmerman teaches complex litigation and administrative law at Loyola
Law School in Los Angeles.

The rules are either final, proposed or already being litigated.

Final rules would take another rulemaking to undo them, and that would take at least
a year, Zimmerman said. He gave as examples the Department of Education rule limiting
arbitration in for-profit college agreements and the Department of Health and Human
Services Centers for Medicare & Medicaid Services (CMS)
rule for nursing homes.

There could also be a court challenge to the process of undoing the regulations because
the agencies would have to justify the change, he said. Notice and comment “is supposed
to be a meaningful process that doesn't just hinge on a change in the administration.”

However, a significant loophole for Trump exists if he wants to undo final rules that
haven't gone into effect yet.

“When regulations don’t go into effect until a new presidential administration takes
control, that administration has some discretion to hold off on implementing the rule,”
Zimmerman said. “It could have its own review and possibly reverse it.”

That would apply to the Department of Education rule. It isn't slated to go into effect
until July 2017.

And, of all the regulations, Trump might be most interested in reversing the DOE rule,
Zimmerman said, alluding to the pending fraud suits against Trump University.

The CMS rule for nursing homes, which also has been finalized, is in a different posture.
It is slated to take effect Nov. 28, before the Trump administration takes over.

But that rule faces other obstacles, as court challenges have already met with some
success.

On Nov. 11, a federal judge in Mississippi stayed the CMS rule in a suit brought by
a nursing home in that state. The judge faulted the agency for not conducting a thorough
review of why it was needed.

Technically an injunction only binds the agency with respect to the individuals involved
in the case before the court, Zimmerman said. But usually the agency will acquiesce
and won't try to enforce the rule against others while an appeal is being heard.

Proposed Rules: Highly Vulnerable

Rules that are in the preliminary stages before final approval—such as the CFPB anti-arbitration
rule and expected action by the Federal Communications Commission—are the most vulnerable.
They could be reversed quickly without notice and comment procedures.

President Barack Obama's 2014 executive order limiting arbitration in government contracts
is also in this camp. “Trump could just reverse it with another executive order,”
he said.

The CFPB has finished accepting public comments on its proposal to ban mandatory arbitration
provisions and class waivers in financial services contracts. Before Trump won the
election, it was expected to be finalized in 2017.

But that's unlikely now, according to Kaplinsky. Beyond reversing the arbitration
rule, the new administration could find it easier to undermine the bureau's power
more generally thanks to an Oct. 11
decision from a federal appeals judge in the District of Columbia.

The court said the CFPB is an executive agency and the president can essentially remove
its head at will, Zimmerman said. “You can imagine that if that ruling stands, it
further supports the idea that a new administration could come in and reverse that
rule before it’s implemented.”

Defense attorney Kaplinsky said “there is a substantial risk” that the new administration
will substitute a five-member commission for the CFPB's sole director.

That would subject the bureau to the congressional appropriations process and restrict
its regulatory and enforcement initiatives such as issuing more rules that it perceives
to be pro-consumer, he said.

“I would think that the likelihood of further rulemaking will decline since a Republican-controlled
commission is likely to be more industry-friendly,” said Kaplinsky, who played a central
role in promoting the use of arbitration clauses in consumer contracts.

The Federal Communications Commission is in a stronger structural position and might
continue with its plan,
announced Oct. 27, to look into an arbitration ban in February. The agency is independent,
and Trump can't change the make up of three Democratic appointees and two Republican
appointees without cause, Zimmerman said.

Rules in Litigation: Tied Up

The new administration will have less control over the rules that are already being
litigated as the ongoing litigation puts those rules, at least in the short term,
in the courts' hands.

This would include the CMS rule and actions by the National Labor Relations Board.

The NLRB has issued decisions finding that arbitration agreements that prohibit employees
from pursing class or collective actions unlawfully interfere with employees' rights
to engage in concerted activity.

Federal appeals courts are split on the board's power to interpret its statute as
it has, and the decisions are up for review at the U.S. Supreme Court.

The board has already filed amicus briefs at the court supporting its interpretation,
Zimmerman said.

But Trump could still find ways to curb its activities, including those limiting arbitration.

Trump could appoint another member to the board, which could reverse its position
and file new briefs.

But, in the meantime, the courts might say that the board was relying on express statutory
authority and properly interpreted the statute.

To contact the reporter on this story: Perry Cooper in Washington at
pcooper@bna.com

To contact the editor responsible for this story:
Steven Patrick at
spatrick@bna.com

Selected Executive Actions Limiting Mandatory Arbitration

Agency

Action

Details

Consumer Financial Protection Bureau

Proposed
rule—released May 5 after years of study by the bureau—would bar banks and other financial
institutions from using mandatory arbitration clauses to prevent class actions.

Bureau received nearly 13,000 comments on proposed rule by Aug. 22 deadline. Final
rule had been expected by mid-2017.

Department of Defense

Issued
final rule in July 2015 (80 FR 43559) extending protections of Military Lending Act to ban mandatory arbitration in broad
range of credit products sold to service members.

Changes went into effect Oct. 3, and include credit cards and other forms of open-ended
credit in arbitration ban.

Department of Education

Issued
final rule Oct. 28 that prohibits postsecondary schools that participate in its federal direct
loan program from requiring students to sign pre-dispute arbitration agreements.

Rule allows students to choose where to pursue claims against an institution and prohibits
institutions from banning class actions by students.

Class action provision is part of rule's “best interest contract” exemption from Employee
Retirement Income Security Act's prohibited transactions, which allows financial advisers
to use certain compensation arrangements that might otherwise be forbidden as long
as they put their clients' best interest first.

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